Structural Changes in the Oil and Tanker Markets

by Jarle Hammer, Director, Fearnresearch, Fearnleys A/S

Expectations about future tanker demand have fallen quite dramatically over the last couple of years. One major reason for this is the amazing technological progress seen in the offshore industry, which, in the course of just a few years, has brought break-even costs for North Sea and other offshore oil production down from about 20 USD per barrel to only around 5 USD per barrel. Key elements are enhanced recovery, horizontal drilling, very deep drilling and floating production.

Recently, most of the growth in world oil demand has been covered by non-OPEC sources, closer to the large market areas. This trend seems likely to continue for some time. Additionally, a larger share of the stagnant Middle East oil production is now being shipped eastwards, over distances only about half as long as for the rapidly shrinking volumes being shipped by large tankers around South Africa to Atlantic destinations.

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